LDN - Business

China tech selling hits stocks, real yields fall before Fed

[July 27, 2021] By Carolyn Cohn and Dhara Ranasinghe

LONDON (Reuters) - World stocks fell on Tuesday after investors sold Chinese internet giants for a third straight day, while real U.S. bond yields hit record lows on worries about the economic outlook ahead of a Federal Reserve meeting.

The Hang Seng Tech index slid almost 8%, plumbing its lowest since its inception in July 2020 and losing 17% in three days.

Big decliners included Meituan and Alibaba, with investors expecting the companies' food delivery arms to be affected by new regulations guaranteeing workers above minimum pay.

Chinese bluechips dropped 3.53%, hitting 2021 lows, thanks to regulatory crackdowns in the education and property sectors.

The selling dented previously upbeat stock sentiment elsewhere.

European stocks fell 0.37%, moving further away from recent record highs. Britain's FTSE 100 was down 0.43%. Global stocks fell 0.3%.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.94%, hitting its lowest since December.

"Valuations are tight but I don't think the China tech crackdown will lead to a major equities sell-off," said Christian Lenk, a rates strategist at DZ Bank in Frankfurt.

S&P 500 futures dipped 0.22% after all three major U.S. stock indexes closed at record highs for a second straight session on Monday, on optimism ahead of a slew of tech earnings this week. [.N]

Alphabet Inc, Apple Inc and Microsoft Corp < MSFT.O> are set to publish quarterly results late on Tuesday, with Amazon.com Inc's due later in the week.

Graphic: BATs vs FAANGs: https://fingfx.thomsonreuters.com/
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POWELL ALERT

The Fed begins its two-day meeting on Tuesday, with investors set to scrutinise a statement and press conference from Chair Jerome Powell due late Wednesday.

They will be looking to see how the central bank will balance fast-rising prices with the complication of increased coronavirus infections.

"There's a realisation that we have passed the peak of growth," said Derek Halpenny, head of research at MUFG.

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A man works at the Tokyo Stock Exchange after market opens in Tokyo, Japan October 2, 2020. REUTERS/Kim Kyung-Hoon

"Some of the supply constraints are beginning to ease."

Real, or inflation-adjusted, bond yields across major economies have fallen in recent sessions, a move analysts attribute to growing concern about the economic outlook following an upsurge in COVID-19 variants, as well as technical factors such as hefty bond-buying by central banks.

The yield on 10-year Treasury inflation-protected securities (TIPS) hit -1.147% on Tuesday, down about 4 basis points on the day.

German inflation-linked bond yields also extended recent falls, hitting a new low at around -1.747%.

Graphic: Inflation-linked bond yields: https://fingfx.thomsonreuters.com/
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The yield on benchmark 10-year U.S. Treasury notes slipped 1.8 basis points and 10-year German Bund yields dropped 1.9 basis points, close to a 5-1/2 month low set on Monday.

The dollar gained 0.11% against a basket of currencies and the euro dipped 0.1% to $1.1787. The dollar fell 0.23% against the yen.

Oil prices inched up as investors bet tight supply and rising vaccination rates will help offset any impact on demand from surging COVID-19 cases worldwide. [O/R]

Brent crude futures rose 18 cents to $74.68 a barrel. U.S. West Texas Intermediate (WTI) crude futures rose 3 cents to $71.94 a barrel.

Gold was steady at $1,796.40 per ounce. [GOL/]

Bitcoin was trading around $37,600, 0.8% higher on the day. It has recouped some losses after it fell from a Monday peak of $40,581 after Amazon.com offered a qualified denial of a weekend news report that said it was preparing to accept cryptocurrencies.

(Additional reporting by Sujata Rao in London and Alun John in Hong Kong; Editing by Lincoln Feast, Ana Nicolaci da Costa, Sam Holmes and Joe Bavier)

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